As I said in another e-mail, no way does Belz’s decision get overturned so the State needs to find another way forward. I’m also assuming there is no way to negate the $111B of pension funding indebtedness.

Here are some off the top of my head thoughts on how to deal with it. A lot of them are NOT original to me; I’m sure I’ve plagiarized ideas from almost every blog commentator. Heck, we need to steal all the good ideas we can find to solve this problem. I’m probably going to be too long-winded (no surprise!) and not all of this directly addresses the pension debt but here goes:

* The classic cut waste / abuse / fraud suggestion. Not saying it doesn’t exist, but the last couple of year’s tight budgets under Quinn have already squeezed some of it out of the State agencies. The biggest problem will be finding it; I don’t’ believe there is anywhere close to enough auditors / inspector generals’ staff to root out what is left. And since you will need to hire people or contractor’s to find it, you will quickly reach a point of diminishing returns.

* Have an honest debate in the Legislature about what should be government functions and what the State should quit doing.

* Just keep following the 1995 “ramp”. Problem is not enough tax revenue when the temporary increase sunsets Dec. 31st.

* Rework the “ramp”. This has several ways to approach it. One item would be to reset the target to 80% funded. Another way would be to bond out most or all of the just “indebtedness” and fund it with a commitment of either a fixed portion of current tax revenues or a new revenue source dedicated to just repaying the new “pension bonds”.

* Again change the pension terms for new hires. You could force all new people into a 457 plan (government version of a 401K) but this would be a double-edged sword for multiple reasons. (1) Right now, projections are that “Tier 2″ members not only pay for their full amount but will also end up paying part of the “Tier 1″ debt. This is only going to increase percentagewise as “Tier 1″ members retire and “Tier 2″ members increase. If there are no more new “Tier 2″ members, then there is none of their money going to offset the “Tier 1″ debt. (2) With a 457, there will be much more clamor and scrutiny of the employer match. No employer match and it probably runs afoul of IRS pension regulations. If there is an employer match, I don’t think the State can get away with “notational entries”; it will have to be cold, hard cash going into the 457 plan. (3) 457 plans have an interesting “loophole”; the funds can be withdrawn upon leaving government service with no age requirement or penalty. That creates the potential for people who leave government employment to blow their entire retirement savings, which kind of defeats the purpose of retirement savings. Yes, I know that’s branching into “nanny” government to make sure people don’t waste their retirement savings … but there is a common interest in making sure people don’t end up on welfare in their old age.

* Create a program for current “Tier 1″ (and probably have to be offered to “Tier 2″ also) employees to either fully or partially (credits going forward) opt out of the Defined Benefits program in favor of a 457 plan. Still has the “457″ problems I noted above. If full opt out, it would also require the State to immediately pony up the cash equivalent of the already earned benefits. The other problem is I would expect the “Tier 1″ people at least halfway to retirement would not choose it, so the savings would be limited.

* Create a program for both “Tier 1″ employees and retirees to opt out of the guaranteed 3% AAI in favor of a uncapped COLA guaranteed to match the Federal SSA COLA. This would be a pure gamble on the State’s part because the COLA over any period of time has averaged between 2.9% and 3.1% (in other words, the State pension planners knew what they were doing when they picked 3% as the AAI). IF, and that’s a big IF, inflation stayed below 3% the State would achieve some savings. However, if inflation were to soar, the State would be stuck with some large unplanned costs.

* Go back to the previous “Schnorf” plan and stick to it. For current employees, pick up the full employee contribution in exchange for foregoing some scheduled raises or COLAs. Going forward, that would have the effect of permanently lowering pensionable salaries by 4% (assumed normal SERS contribution).

* A different twist on the “Schnorf” plan. Some people want / need time off more than they need pay. Develop a plan to allow work schedules with less than “full” hours with pro-rated salary reduction. It won’t save a lot in the short run, but if it is in place for more than 6 years, it will affect the “final average compensation” which will reduce the amount of the earned pension.

* For existing “Tier 1″ employees, offer an uncapped COLA in place of the fixed 3% AAI but require a higher contribution rate (0.5%. 1% ?). It might have some of the same problems as the AAI / COLA swap suggested above but they should be able to create a cost structure to offset some or most of those issues.

* One of my more off the wall ideas would be to offer another 2002 ERI style early out, but make the buy-in cost more. Upside would be stopping any increases in additional pension benefits for the people who take the deal anyway. Downsides would include the immediate cost hits, less employee contributions going into the pension funds, and yet another loss of institutional knowledge that the State probably can’t really afford.

* The cost shift to the school districts for the “normal” pension costs. This one is fraught with perils. Potentially, the State would save money at the expense of the school district (local taxpayers) getting stuck with an unaffordable cost. It doesn’t get rid of the cost going forward; it just shifts it from the State to the local districts. And I can see such outcry that the State ends up sending the same money to the school districts, except it is now called school funding instead of pension funding. I may be in the minority, but I just see this as another way to kick the can down the road and end up with a lose / lose situation.

* Get creative with taxation / revenue sources in order to just pay the bills. Various ideas have been floated; there seem to be a number of reasonably viable paths but none will be easily achieved. (1) Eliminate some or all of the various income tax exemptions. (2) Switch from the current flat income tax to a graduated income tax with the goal of increasing overall revenue. (3) Expand the sales tax to cover all services. (4) Phase out the income tax completely in favor of an expanded sales tax with no exemptions. (5) Replace the corporate income tax / sales tax with a gross receipts tax; makes exemptions or evasion almost impossible. Some of these will require changing the constitution with voter approval. Almost all of these changes will require overcoming the entrenched special interests supporting the current approach or the current loophole.

* DOC is one of the larger budget costs; reform the laws in this State to decriminalize victimless / non-violent offenses. Yes, that includes things like decriminalizing drug possession of minor amounts (keep the dealing offenses on the books). Also take a serious look at the rest from releasing elderly prisoners; it costs the State a lot to incarcerate them for what may be minimal safety benefit.

* Just get Rauner’s friends to pay off the pension fund indebtedness in total. Okay … this one is snark.

Bottom line: the pension funding will not get solved in a vacuum or in a stand-alone solution. It’s going to have to be just a part of a bigger solution addressing a number of the State’s problems.

All good ideas RNUG. I wish Gov-elect Rauner had the wisdom to reach out to people such as you (years of experience in state government at an operational level) to help with ideas/answers. Maybe he will.

Illinois WILL default. Whether a State can declare bankruptcy or not will ultimately be a futile exercise because even if it is declared unconstitutional, it will be a de facto bankruptcy. The net result will be pensioners will get less than promised like in Rhode Island.

Not much more can be squeezed out of the people and the pension deficit can not be covered. The obvious is unpleasant and Rauner will take the fall. And Madigan knows this…

Perhaps it’s time for more and more State programs pay for themselves instead of consuming general revenue funds. For example, why is a 4 year EMT license only $45 dollars? The $45 can’t possibly pay the costs of licensing and regulating EMTS.

I don’t have a dog in this fight, so I’ll bring up something I’ve mentioned before: Amending the Illinois constitution to eliminate the section on pensions.

Then throttle back pension payments to no more than $x, with a suggestion that the federal PBGC cap be the “X”. Those who are making high-five and six-figured pensions will take most of the hit, but paying someone an 80k-150k pension for forty years isn’t sustainable.

Money issues make people do and say stupid things, but math is math and where we are at is not only unsustainable, but it will someday be beyond anyone’s ability to pay.

The other issue to keep in mind is that most current employees understand that the pension — their pension — is a key part of their employment with the state. For the past two years, the idea of a “key part” has been underlined and highlighted by all the clamor.

Assuming that the Belz decision means that current employees can’t be *forced* into something and must choose something — most folks will never — and I mean never — *choose* anything that Rauner offers or creates — no matter how he spins it.

This is bad news for Rauner the salesmen. Essentially, he has to sell a hoopty to folks that know that Rauner is selling hoopty’s. Usually, the folks who willingly buy hoopty’s have no idea — and they just like the paintjob. That ain’t gonna work here.

Word’s out, and folks aren’t looking to trade or buy. They’re driving what they have — the one that’s constitutionally protected. Not the new shiny one with the shaved VINs and painted over rust.

“* One of my more off the wall ideas would be to offer another 2002 ERI style early out, but make the buy-in cost more. Upside would be stopping any increases in additional pension benefits for the people who take the deal anyway. Downsides would include the immediate cost hits, less employee contributions going into the pension funds, and yet another loss of institutional knowledge that the State probably can’t really afford.”

Maybe even have a reduced COLA as part of the Early retirement option as well.

I know legislatures set up an even cozier retirement program for themselves than other state workers but there was a story over the weekend Pat Quinn will have collected more in 2 years from his pension than he has contributed over his entire career.

Whatever the painful short-term transition costs these taxpayer funded golden parachutes need to come to an end. Until large structural changes are made the budget deficits will never stop.

Is it feasible to allow all employees to buy 5 or so years of service and bank them? This could provide a large (1 time) influx of cash into the system. It could also help push out those who are close to retiring.

== Amending the Illinois constitution to eliminate the section on pensions. Then throttle back on pension payments ==

Sounds like an ex post facto policy. You would have to repeal the contract clause in the constitution as well, and the Fifth Amendment to the US Constitution that protects property from being taken without just compensation.

This is the most reasonable first step: * Rework the “ramp”. This has several ways to approach it. One item would be to reset the target to 80% funded. Also, extend out the amortization schedule per the recommendations of Ralph Martire, Center for Tax and Budget Accountability.

Logical — I agree with the premise but only if licensing costs are set based on cost analysis AND there is a way to prevent the GA from ’sweeping’ these funds. If there is an excess the license cost should be reduced.

When are the legislative and executive branch leaders finally going to realize that Ralph Martire has suggested the most reasonable course of action for years? As much as I hate to say it, taxes on services are long overdue as well.

1. FY15 Contribution $6.9B
2. Add $100M each year for 10 years
3. Then flat
4. Increase employee contribution 2% as per AFSCME previous proposal
5. Do new normal cost shift as per Madigan
6. As each POB, note expires, direct those $ to pensions

If items 1 through 6 are implemented, the pension systems are more than 95% funded by 2045. I’m not as concerned as RNUG about the cost shift. Under Madigan’s plan it is done very slowly.

Can you provide other examples outside of government where someone can collect more than their lifetime contributions in just 1.5 years?

Of course a dual cause has been a long running irresponsibility on state government from both parties. On what platform anyone in the state legislature that has been in office for longer than the last 10 years had a leg to stand on for re-election is beyond me.

Lots of ideas out there, but only a few of them address what’s the problem: it’s a debt problem. It isn’t a pension problem or a benefit problem. It’s a debt problem. And until the state deals with the debt, this will continue to be a problem.

There were some over the top pension guarantees for superintendents in suburban school districts and some people like Glenn Poshard and Ron Huberman gamed the system, but for the most part the pensions were find until the state started borrowing heavily. One thing I would like to see is to separate the pension money from the operational money like it used to be. I don’t think public employees should give up a plug nickel until safeguards are in place to make sure that their concessions won’t be used to pay for pet projects and the state comes back to them for more concessions in five years.

What happened to just taxing the pensions. We are far better off to that and keep our 3% COLA. But wait the wealthy elite with their own pensions and various millions of dollars other retirement accounts won’t go for that.

Excellent summary by RNUG. I would suggest adopting the following elements.

On normal costs, the State keeps paying the normal costs for each individual on the basis of the person’s current salary; the employer pays normal costs for all future increases in the person’s salary. This makes pension costs a consideration for schools/agencies whenever raises are granted.

Bond out the debt with a dedicated revenue stream (taxes of some sort) that is identified with the pension debt and expires when the bonds are retired. Target 100% with optimistic investment returns or 80% with pessimistic returns. Act soon to take advantage of low interest rates.

The bond program eases the budget crunch which makes office holders happy, the Constitution gets blame for the associated tax increase, investment firms receive fees from billions of pension dollars, and the State can move forward.

Very Fed Up….my husband worked for Sears…his pension works out over his lifetime to add up to about 1.5 times what was contributed. The same is true of retirees I know from US Steel and AT&T (theirs is about 2 times their/employer contribution).

Kudos to RNUG for a thoughtful outline of possible solutions. Everyone should also realize that nothing can be done without the political will of the four tops. Their constant focus on political power,protection of their targets,protecting their caucus,lack of political courage to do the heavy lifting and putting re-election above and beyond all else will make a lasting solution nearly impossible. I would opt to tax retiree pensions,extend the ramp,fund at 80 percent,borrow through bonding,raise taxes,freese hiring,moratorium on new programs that cost money and across board cuts to all branches of the gov.

Ilinifan that is more in line with the private sector. You can have cases where someone contributes less than 200K over their career and will expecting normal life expectancy collect well into the millions.

Fed up….I forgot the obvious one…Social Security. Take a look at the amount of an average persons contribution and what they (and possibly a surviving spouse receive over their lifetime)…according to the Urban Institute “According to the institute’s data, a two-earner couple receiving an average wage — $44,600 per spouse in 2012 dollars — and turning 65 in 2010 would have paid $722,000 into Social Security and Medicare and can be expected to take out $966,000 in benefits. So, this couple will be paid about one-third more in benefits than they paid in taxes.

If a similar couple had retired in 1980, they would have gotten back almost three times what they put in. And if they had retired in 1960, they would have gotten back more than eight times what they paid in.”

My suggestion for another small tweak - remove OVERTIME when calculating “final average compensation”.
A worker already receives financial gain (time and 1/2) working overtime, and I suppose the largest pool of overtime users (Corrections), already benefit from the ALTERNATIVE Retirement Formula.
If the workers who normally ‘volunteer’ for overtime stop volunteering, maybe the State will start hiring enough new workers to eliminate most of the need for overtime.

I can’t speak for others but I’d much rather sacrifice now than later. Of all the bad options, increasing my employee contributions, within reason, is something I’m very willing to do. Yes, the state didn’t pay their part, and no it’s not the employees fault, but the hole is so deep that some shared sacrifice has to be part of the solution. I also like moving to a real CPI, because my main concern is having my retirement keep pace with inflation. A flat 3% is, in real terms, a raise some years, and a cut others.

Pay off high-interest debts to the pension funds with low-interest bonds.

Phase in a cost shift for future employer match to the TRS and eventually to a 50-50 split between the state and the employer school districts. Every private employer pays social security payments. Schools in Illinois don’t pay any social security, so their contributing to the TRS instead is not out of line.

At the risk of sounding defensive, I feel that the whole “pension crisis” talk of the past few years is pretty much a hoax designed to take attention away from the way our past legislators and governors have really screwed up. What we should have been concentrating on is how to pay off the huge DEBT past politicians have created for taxpayers. I think we are about to learn that the ISC is going to rule that the State really does owe big dollars to its current and past workers, and they can’t renege now. So far, most politicians have proposed only plans to renege of promised payments rather than ways to pay off the debt they have deliberately created. Unfortunately, the “pension crisis” reporting has had the effect of denigrating most Illinois public workers. The so-called “pension problem” is really a DEBT problem.

Admittedly, there is room for improvements in the State’s defined benefit plans, to stop abuse of the systems, but I haven’t seen any evidence that they are actuarially deficient. I think the SURS Tier 1 plan (which is actually better than the SURS plan I am retired under) does a pretty good job at very little taxpayer cost. Since defined benefit pans depend of compound interest and it is hard to visualize the effects of compound interest over a long time period, I have created a model that will do the math for you. Take a look at http://www.illinoissqueezy.com/questions.html and give it a try.
We may be in danger of throwing out a plan that could be a good bargain for workers and taxpayers.

Compound interest is otherwise known as inflation, which compounds. For examples of this remember, or ask soneone older what they paid for gas or their house 30 years ago. 3% is a reasonable approximation of inflation. Impoverishing seniors later in retirement is a procrustean solution.

I think Steve Snorf’s suggestions above should be given a close hard look at solving this ticking time bomb of $100 Billion plus, and growing:
- steve schnorf - Monday, Nov 24, 14 @ 11:06 am:

here’s another possibility

1. FY15 Contribution $6.9B
2. Add $100M each year for 10 years
3. Then flat
4. Increase employee contribution 2% as per AFSCME previous proposal
5. Do new normal cost shift as per Madigan
6. As each POB, note expires, direct those $ to pensions

If items 1 through 6 are implemented, the pension systems are more than 95% funded by 2045. I’m not as concerned as RNUG about the cost shift. Under Madigan’s plan it is done very slowly.

An additional approach, to do in addition to above that makes sense to me (an already suggested above), is to also tax retirement income above a certain threshold. If we in fact do all of the above, we can solve this problem in a reasonable amount of time. And also wisely pointed out by above commentator, make the cos- shift very gradual. All excellent ideas. And it shares the pain.

Matrire suggested that the state re-amortize (same as redoing the ramp)and set funding rate at industry acceptable 70 - 80%

457/401K style for those already in will not pass muster and, since the state does not pay it’s bills anyway, provide not benefit that a savings account at you local bank or setting up your own mutual fund cannot get you already.

Capping salaries is arbitrary and does not take into consideration real inflation of costs over time. I don’t like the $300k and $400k state pensions but, honestly there are so few (Eric Madair did some analysis of their impact. Pension costs would be VERY manageable and not “too expensive” or “unsustainable” if the pension payments, required by law, were made by the state.

ERO- early retirement costs districts big time. While the employee has to pay districts get hit with a large penalty as well (at least that is how it works for k-12). If that were changed to be entirely on the employee it would work better.

Cost shift- for K-12 the 11% reduction from the statutorily required funding level is about what cost shift would equate to. I like cost shift, especially if districts have some authority to levy for the cost (would return local control and communities could chime in on the issue. I think this is especially important if the funding levels will drop or even remain the same. This is the only way the pensions get funded.

The bottom line is that what ever is decided the legislative and executive branches actually have to follow the laws they pass. There in lies the real problem. They have violated the law for decades with no repercussion until now, maybe. The fear is new revenue would embolden them to find new ways to spend. Even a perfect answer (if there was one) cannot succeed until our leaders exercise some control over time.

I can only stomach the idea of “shared sacrifice” if all Illinois residents are sharing in that sacrifice. To have contributed religiously to your retirement fund all of your life only to learn when you get close to becoming a beneficiary that all kinds of folks benefited from the money diverted (stolen from the pot) means to me that all kinds of folks need to pony up to make up for what pension fund recipients were duped out of. I don’t believe that pension fund recipients need to sacrifice anything more than anyone else. After all, they got goods and services for cut rate prices courtesy of us.

The pension issue is incredibly difficult for me to come down in favor of one plan over the other. My father is a state retiree after +25 years of service. My mother is currently a teacher for the state. I’m a private sector employee. I don’t see a scenario where all three of us are happy or even one for that matter.

Here is an overview of the pension plans. Most state employees pay social security and an additional 4% for a supplemental state pension. To increase their pension contributions by 2% would increase their payroll deductions from 10.2% to 12.2%.

I would still like to see some actuarial data on whether an early retirement incentive in some form or fashion would benefit or harm pension funding. I can’t imagine a scenario where a Tier 1 employee would buy into an incentive now to cap their 3% COLA later or be willing to accept a 457 plan.

Making the defined benefits pension system work well in Illinois, is not an unsolvable problem from a practical point of view.

A combination of ideas from Schnorf, Martire, RNUG, Madigan, plus the impacts of changes already made, can produce a long-term solution. As usual, the politicians will have to step up more courageously than previously.

On the other hand it is easy for political leaders to make sure it does not get fixed, to make an ideological point.

@Walker
In what ways do you think the defined benefit system is not working well? It’s badly underfunded, but that’s not a problem with the system, it’s just the inevitable result of many years in which the state didn’t pay the ‘normal cost’. In every other way it seems to work just fine—except that people say it isn’t working, alarming those of us who depend on it.

“Anyway, there is some number greater than $0 and less than the actuarial value of a defined benefit that will convince folks to move from a define benefit to a defined contribution program.” Change your context from “defined benefit” to, say, “gun ownership” or “marriage” or “religious freedom” and ask the question again. All four are equally protected by the Constitution.

I appreciate the list of solutions by RUNG but each pension system is unique enough that no one size fits all answer will get it done. There should be individual packages developed for each system that provide long term answers that really work for both the members and the state

==state’s “reform” effort was a way to see if they could get out of having to pay up

Yes, and they will continue to contort and lie and scheme in any way possible to try to get out of paying back what is owed to workers. This was only the first assault. Many more to come probably with more vitriol from the 1%ers who are just dying to get their hands on that money. Isn’t it amazing that millionaires are begrudging grandmas living on 30-40K/year because those greedy people want more?

A pension is but one part of an overall compensation package. Calculations that were referenced on this blog about four years ago indicated that the overall compensation from the state of Illinois was within dimes, if not pennies, of the overall compensation, including pensions, of major businesses. The state needs to be competitive in hiring and retaining employees. If the pension part of the package is reduced the cost of the rest of the package will increase over time. Any projection of savings from pension reform need consider this.

In light of the state letting its individual state income tax rate drop from 5% down to 3.75%, I don’t think that the state pension employees would still be willing to volunteer to contribute an additional 2% out of their paychecks. That would not be sharing the pain.

There has also been some mention from general assembly members in various news articles suggesting that we should go back to SB 2404 that gave employees a choice between health insurance premiums being paid in retirement - or cost of living raises in retirment. Since the ILL Supreme Court has already ruled that the health ins benefits can not be diminished - and may soon rule that the pensions themselves can not be diminished, I can’t imagine the unions would still accept that deal anymore. Both considerations would be negatives for the employees and retirees. And with rulings by the courts protecting both of those considerations,why choose to loose one to keep the other?

Bond the thing while you can. The bond ghouls love Illinois paper, and the bonding process makes friends. If it comes to it you may have to reduce high cost employees and hire younger and contractual employees. Just sayin’.

RNUG - a very good list. One concern
“IF, and that’s a big IF, inflation stayed below 3% the State would achieve some savings. However, if inflation were to soar, the State would be stuck with some large unplanned costs”

IF, and that’s a big IF, inflation stayed below 3% the State would achieve some savings. However, if inflation were to soar, the State would be stuck with some large unplanned costsIF, and that’s a big IF, inflation stayed below 3% the State would achieve some savings. However, if inflation were to soar, the State would be stuck with some large unplanned costs”
Given that inflation has stayed so low for 30 years, and our nation debt is so high, I believe that we may see a day of reckoning at some point…soon.

Very Fed Up: I am a finance professor at the University of Richmond. Similar to most private universities, we have a defined contribution (403b) retirement plan, whereby the employee contributes 5% of salary and the employer makes a matching 10% contribution. The university also pays the 6.2% employer portion of Social Security. I realize this is a generous employer match compared with what most businesses offer, but it is very typical for universities.

I was intrigued by your challenge to provide examples outside of government where someone could receive more pension income than their total lifetime contributions in 1.5 years, so I constructed a simple spreadsheet model to see if this would have been possible under my university’s 403b plan. Here are the assumptions I used:

Person X began working at the university on January 1, 1979 and retired December 31, 2013 (i.e. a 35-year career). X’s starting salary was $20,000 per year, and each year X received a raise matching the CPI inflation rate + 1%. X invested all of the employee and employer contributions in the S&P 500 index, earned the total return (including reinvested dividends) on the S&P 500 each year, and withdrew no money until he retired.

Here is what I found: X’s total employee contributions over the 35 years (in nominal terms) would have been $96,661, and the account balance on Dec. 31, 2013 would have been approximately $1,807,253. Using a relatively conservative sustainable initial withdrawal rate of 4% (that increases with inflation each year), as is recommended by most financial planners, X would be able to prudently withdraw $72,290 in 2014, and that amount plus (say) 2% inflation, or $73,736, in 2015. Thus, my math indicates that his total employee contributions would be recovered in about 1.33 years. And, unlike most Illinois government employees, X would also receive Social Security on top of this.

The underlying force that produces this result is the compounding of historically high average annual stock market returns over a long period of time. There is nothing nefarious about it at all.

To add a little to what Andy S says above: a 10% (of salary) contribution to a 403(b) is very standard for private universities. Add to that 6.2% SSI, and the university is paying 16.2% of salary for retirement. (And the employer is contributing 9.2%.) This is more than the ‘normal cost’ of the SURS system, not less.

In addition, note that professors are better paid at private universities than at public universities.

I don’t know about how e.g. lawyers employed by the state do compared with lawyers in the private sector (less well, I strongly suspect), but I do know how it works for professors. So enough of this ‘public sector employees have such a cushy deal’ stuff.

Im glad to see some are finally coming around to see that the 3% AAI was actually a genius idea. Not only can the state budget for it and not have any great surprises in times of runaway inflation, but 3% has mirrored the variable COLA given by Social Security, averaged over the years. Apparently 3% is not only not lavishly outrageous, but a predictable amount to budget.

Seems to me that Rauner is going to propose drastic salary reductions at the next contract negoation. Thr union will need to put on the table pension reform. I’m guessing the union will get members to agree to a 2% contribution and keep the Cola a 3 %,but not compounded.

What UNION? Do some people think that every person who gets a paycheck from a public employer is a union member like the AFL-CIO or Teamsters? WHat?
Another way that the public is being misled about this entire topic! There are plenty of public workers who do not belong to any union and there are plenty of professional organizations which some like to call unions so they can denegrate them–apparently organizations that represent working people are nasty things to them. There is no one who speaks for me!

As I told Rich, I was going to be gone most of the day. Just finished reading the comments; sounds like a number of additional good ideas, a couple of which have been discussed on CapFax before and I should have stolen for the list.

Here’s hoping the 4 Tops and the Gov-elect were taking notes since something has to be done to make the math add up.

When it comes to the pensions, that is an INDIVIDUAL contract between the employer and employee. After Belz’s decision, I assumed it is a given that any change going forward for BOTH the already retired and the currently employed must be done via clearly defined contract law, i.e., an INDIVIDUAL and VOLUNTARY choice on the part of both parties.

On replacing the 3% AAI with a COLA tied to the actual inflation rate: Google Daily Treasury Yield Curve Rates. As of today, you will see that the yield to maturity on ordinary 30 year Treasury Bonds is 3.01%, while the yield on 30 year TIPS in which all future coupon and principal payments increase with the CPI is 0.99%. So the breakeven inflation rate, i.e. the collective forecast of millions of investors worldwide, is currently 2% per year over a 30 year horizon. Unless things change over the next few years, and with the Dollar rising and oil prices falling I think inflation is actually more likely to go lower rather than higher, I would strongly counsel anyone offered a true voluntary choice between the current 3% AAI and actual inflation to keep the former.

=When it comes to the pensions, that is an INDIVIDUAL contract between the employer and employee. After Belz’s decision, I assumed it is a given that any change going forward for BOTH the already retired and the currently employed must be done via clearly defined contract law, i.e., an INDIVIDUAL and VOLUNTARY choice on the part of both parties.=

Good point, however, I believe there is a difference between already retired and still employed. Not in terms of whether your pension can be diminished etc. but in terms of the fact that when you are employed (if represented by a union) you may find that there is a negotiated contract (you get a vote) that may involve pension contributions, for example, increasing in exchange for salary, work conditions, job security etc. I believe, not sure of course, that as long as union (for currently employed and a member of that union) negotiated this type of exchange as part of a contract cycle then I don’t believe each individual would be able to turn decide “up or down” for them. They would have a vote and of course and could sue the union if they did not legally represent them etc. Small distinction I believe still exists between already retired and still employed — not by the strict legal review of the pension clause but by the fact that there are so many other work related areas to negotiate. I am speaking of those in a union. When you join a union they become your representative. Current employees may vote for something that exchanges higher contributions for job security or new salary step schedules etc.

Andy S. is right. In Illinois, IIT will give 5% to a 403b, then match up to another 4%. Northwestern also gives 5% and matches up to another 5%. You might have to work five years before they do this, but if they want you, they could waive this requirement. This is not just for the Talent (read: faculty) but all benefits eligible staff.

With FICA/Medicare, these have a higher cost than the normal cost for the State in its pension.

The normal cost to the University of Chicago is harder to determine, the 403b and matching contributions are low, but they also have a defined benefit pension for the non-faculty benefits eligible employees. The factulty? well probably more like free agent athletes if you have enough Nobel prizes.

All of the private enterprises have to pay FICA as some of you already know.

My conclusions so far on the pension issue. The pension system for tier I and II are sound systems if funded properly. The pension problem is a debt problem primarily driven by not proper funding. You need to retire the debt and properly fund the constitutionally protected promises made to employees and retirees. We are and must always be a land of laws. There are emotional and compelling arguments for why SB1 should be supported, but the rule of law and the sanctity of the constitution is absolute. Without the rule of law and the certainty of the constitution we all have nothing to count on. All tax payers have benefited by programs being paid for on the backs of the pension payments and all tax payers will be tasked in some manor in paying back the fund — there is no “free lunch”. I think we should look at bond debt and ask what burden that takes on all tax payers and how that debt burden is squeezing the budget. It is a fair debate about future state employees and what type of retirement system they should have. Just like tier II, it is fine to make changes for future employees. According to our constitution, once the state makes a promise on pension benefits it must honor those. Removing that pension protection is legal and fair and would apply to future employees as well. The reason this pension crisis (debt) is such a problem to solve is that this legal and budgetary, tax, economic issue must be solved in the framework of and through the prism of politics. We are watching a legal, moral issue play out politically which it will. The pension system that I have was put into place by this same political system. Politics is like watching sausage made (as has been said many times) you are best to enjoy eating it and not watching it. If I block out all the noise, nothing that much has happened to me. All of my pension AAI have been paid to me and I now am back to paying zero for my health care premium. I will soon be made whole with a refund…perhaps minus some fees. In the fullness of time all will be known and we will see a political system that will find it ok to get away from reducing benefits and will start looking at ways to financing the debt. Having a republican gov. and a democratic ga is key…both can share blame and success. Both parties are in the same boat now. Finally I must say this…thank God for the third branch of government. An independent and honorable judicial branch is so key to our republic democracy. Wow, were our founding fathers a smart group.